160 Million Will Pay Higher Taxes On January 1st If Congress Does Not Extend The Payroll Tax Cut

After a bipartisan bill to extend the payroll tax cut for two months passed the Senate on Saturday and was expected to fail in the House today, lawmakers in Washington could hang their hats for the holidays tonight without extending the 2 percent tax cut.

If Congress does not act before Jan. 1, the average American would get a New Years gift in the form of a $1,000 tax hike.

Both parties have already agreed that the tax break should be extended, but a political fight revolves around how to pay for the $112 billion tax cut, which went unfunded last year and which both parties have vowed will not add to the deficit this time around.

If the temporary holiday is allowed to expire, as it is set to do on Jan. 1, 160 million workers would see their payroll taxes, which fund Social Security, jump back to 6.2 percent, meaning Uncle Sam would take an extra $1,000 from a worker who earns $50,000 in 2012.

“If it doesn’t happen, every paycheck in the country will go down on Jan. 1,” said Chuck Marr, the director of federal tax policy at the Center for Budget and Policy Priorities. “It’s real money. Every person you see every day has a thousand dollars less money. That’s a lot of bucks.”